Analysis of Disneys Corporate-Level Strategy - Case Study Example

Word count (excluding headings 993 In the given ambiguous circumstances for Disney, it is crucial both to diversify company’s activity through investing in theme parks and media networks and to lower the degree of vertical integration though encouraging alliances. As one of the most popular companies in contemporary world, analysis of Disney through corporate strategy framework shows the success of corporate competitive advantage in circumstances of multiple markets. In case of Disney, the long-term activity of this company reveals its core success in movie, TV, amusement parks, and consumer products industries (case, p. 16). Nevertheless, unequal development of these markets and unstable history of Disney development make it necessary to investigate its corporate-level strategy in detail. 1. Analysis of Disney’s corporate-level strategy 1.1. The overview It is evident that core competencies of Disney from the very beginning of its existence are being horizontal family-oriented entertainment corporation. With the decision to make company public in 1940, Disney brothers also enabled focusing on international markets in company’s current activity. Previously, being international animated corporation was also among Disney’s core competencies. Currently, competition in this segment does not allow thinking so. As global company, Disney constantly orients on the economies of scale. In particular, it has fixed costs on the product (film) and gains profits depending on the number of its buyers (box office). While developing, Disney Company also paid attention to the economies of scope. For instance, it launches monthly meetings of executives and certain coordinated corporate events. In addition, in-house media buying group aims to coordinate media buying for the entire company (case, p. 6). All this together helps the company to reduce the costs of marketing campaign spent on each syndication group. Supplementing these features, the key element to comprehend boundaries of the firm is to reveal its style of managing transactions in different markets. Throughout the corporate history, Disney realized the benefits from reducing transactional costs. In particular, examples of founding Buena Vista Distribution, establishing Disney Press, and merger with ABC serve as illustrations of company’s intention to cover all the production costs by company itself not by relying on market. In short, it is reasonable to state that Disney involves vertical integration at the highest level in its production as diversified global corporation. 1.2. Key advantages of Disney’s corporate strategy The key benefit of vertical integration demonstrated by Disney is its ability reduce costs significantly. As example of Buena Vista Distribution shows, transferring distribution to internal transactions costs was a more efficient strategy for the company than previous attempts to find and convince distributors in promoting Disney films. In other words, vertical integration allowed Disney to increase its operational efficiencies with the improvements in coordination and value chain activities (text). Another positive aspect of current corporate strategy is that Disney engages diversification in its activity. With international sales of different products and theme parks in USA, Europe and Japan, the company reveals pursuing a product-market diversification strategy. Because of this, Disney has an opportunity to use benefits from economies of scale and scope and have ambitions to increase its growth and market share. 1.3. Key disadvantages of Disney’s corporate strategy Nevertheless, the chosen approach on organizing economic activity within firms has certain limits. As the key disadvantage, the principal-agent problem revealed its power in Disney history. For instance, the conflict of interests led to the loss of Katzenberg in 1994-1995. In fact, it indicates of the prevalence of Eisner’s interests in the company. Currently, the company also suffers from internal conflicts (case, p. 14), which means that the problem is not solved yet. Moreover, Disney’s constant growth and corporate diversification question the ability to maintain superior performance in different markets simultaneously. Even though this behavior is efficient in terms of providing economies of scale, it leads to falling from related diversification to unrelated one. In this context, the enormous growth means that it is hard to maintain clear linkages between different parts of Disney business. 2. Recommendations of Disney Board 2.1. Mind core competencies and invest in theme parks and media networks While choosing development in terms of growth and profits, Disney Company endangers its ability to maintain core competencies of family orientation and horizontal organization. In contemporary conditions, employees already accuse management for the lack of attention to the core values of company’s creator, Walt Disney. In order to avoid this problem, Disney Board is better to concentrate on the core competencies in the most profitable spheres. For this aim, the Boston Consulting Group Growth-Share Matrix is useful. In this framework, Disney’s financial data (case, p. 15) shows that theme parks and media networks are ‘stars’ with high market share in a fast-growing market. At the same time, incomes from consumer products and audio entertainment (film) are too low to rely on them in the future. Thus, it is reasonable to invest in these two industries and saturate them with Disney’s family-oriented and equity spirit not to lose its core competencies and related diversification. 2.2. Turn from vertical to taper integration The analysis revealed that Disney aims to concentrate all the costs with the firm not market. Thus, it is better for the company to enlarge the level of key participants in to solve current principal-agent problem. For this aim, aiming on the equity alliances rather than mergers is the first step towards organizing economic activity not within the firm exclusively. In other words, it will introduce taper integration to Disney instead of current reliance on vertical integration. As the situation with ABC merger had shown, greater vertical integration caused short-term advantages and long-term disadvantages. Thus, current situation in Disney requires changing of corporate strategy. Even though greater reliance on market increases the costs of promotion for Disney, it will solve current problems with challenging of corporate brand. In the future, such an encouragement of new actors has potential to solve the problem of numerous internal conflicts, which creates current dangers for contemporary state of corporate culture within Disney. 3. Conclusion In sum, Disney shows too high vertical integration and too low reliance on core competencies in its internal corporate management. Thus, it is better to reorganize its related diversification strategy by investing in ‘star’ industries (theme parks and media networks) and dissipate internal tension by gradual turning to taper integration. Read More